January 06, 2006

Terminology traps

The Financial Times kicked the new year off with a long editorial about ‘the media industry in an internet age’. The editorial discussed the spreading ripple effects of digital downloading on the music industry, and then turned its attention to newspapers, to note that people will always want information that is “researched, scripted and edited in the traditional way”.

“There will be more competition and uncertainty in the new world,” it concluded, “but some things will be the same”.

Sameness and difference. We humans seem to have incredible difficulty dealing with these concepts. We can’t seem to stop ourselves trying to pigeon-hole things into neat boxes. One thing is ‘revolutionary’, we say. But another thing is merely evolutionary; more of the same. We then argue endlessly about what should go into which category.

But the real world around us doesn’t recognise these distinctions. Every revolution has its elements of continuity. And most evolutionary change has increasingly ‘revolutionary’ effects as it accumulates over time.

The Bolshevik Revolution in Russia was a real revolution, for example. An entire social class and system of governance and administration was overthrown. A new way of running things came into being, with new people in power. For most of the ensuing century we were all in thrall to its knock-on effects. Yet, looking back, we can also see strong elements of continuity. The Soviet system revolved around more of the same. More industrialisation, more electrification, more wealth creation via the mass production of standardised units – just as Fordism did across the ideological divide. It was the sameness, not difference, that triumphed in the end.

Meanwhile the falling cost of computing power and our increasing ability to distribute digital information at low cost has been an evolutionary affair, starting over fifty years and trundling on ever since. There are some significant milestones, but it’s difficult to pinpoint any defining turning points; only symbolic markers such as Apple’s launch of the personal computer. The same trend towards ‘democratised information’ has simply continued, with accumulating effect.

The FT was forthcoming about these accumulating effects in its comments about the music industry. What bundles of value are made available (e.g. single songs or complete CDs), how much we pay for them, how we pay for them, how we access them, using what tools, and how we use the resulting value bundle – all of these things have changed.

Like the FT, the music industry can claim that things are still the same. We are still listening to music. Likewise, there will always be demand for well-researched, edited information. But if I was the FT’s owner, Pearson, I would still be quaking.

Real value-creating businesses do not revolve around abstractions like ‘music’ or ‘researched, edited information’. They revolve around the nitty-gritties: the exact bundle of value, how it is distributed, purchased and used, at what cost and for what revenues: all the things that are increasingly not the same. The market for quality information may well grow. Whether it grows within the framework of an institution like the FT is a very different matter indeed.

So why go on about this silly editorial? Because it sums up much of the debate surrounding buyer- or person-centric commerce. It’s often said that the printing press was one of the most revolutionary (there we go again) of all inventions because it democratised knowledge and learning. Well, ‘the information age’ is extending that democratisation to other forms and uses of information too: to the information that is used for planning, organisation, administration, coordination, communicating, transacting and so on. To the information that lies at the heart of every business, in other words.

The falling costs and increase ease of all these different aspects of information processing mean that increasingly, they are becoming tools in the hands of individuals instead of remaining a monopoly preserve of big institutions, as they once were.

Thanks to this accelerating, accumulating ‘evolution’ we are increasingly able to reconfigure the bundles of value, the means of distribution and access (and associated costs, revenues, payment mechanisms and other forms of value exchange such as information and attention trading) around the specific circumstances and needs of individuals.

Instead of starting with ‘a supply chain’ and then going looking for ‘a market’, we can start with an individual and his needs and wants, and then go looking for ways to address them. Because we have the information infrastructure to do so, at a viable cost.

Like the FT, you could insist that even so, “things will be the same”. Individuals will still want to eat, find shelter, stay healthy, move from place to place, and so on, just as they have always done. Just as they have always liked music, and valued quality information. Absolutely. But exactly how they do all these things is becoming increasingly person-centric.

Is this evolutionary or revolutionary? Is it more of the same? Or different? It doesn’t really matter which pigeon-hole you choose. What does matter is that the opportunity is real.

Comments

Thinking about it. I also had some comments on your other check-points.

1. “Value is created through the purchase process itself, not through the production process”.

Well, sort of. You could say that luxury or experiential retailing creates value through the purchase process itself. And that is not buyer- or person-centric. What is true, I think, is that person-centric businesses take a broader or ‘total’ view of value. While the seller-centric firm is concerned mainly the value of what he brings to market – of his particular product or service – the buyer-centric service seeks to address total cost/benefit, which includes the cost of acquiring the product and service, of using it (in the context of other products and services), repairing, upgrading, disposing etc. These are costs that (mostly) do not impinge on the seller, whose focus is on raising revenues by closing a sale. This is why sellers tend to ignore them.

Again, the real distinction here is not between purchase process and product but between whose overall costs/benefit equation we are trying to improve.

2. “Information divulged about the individual is designed to be sufficient for the individual’s purpose, not the organisations”.

The core point about person-centric services is that they see personal information as a personal asset/resource rather than a corporate one. Person-centric services help individuals make the best use of their personal information, maximise its market value, and so on. This is not on most sellers’ agenda. They want to use this information for their own purposes of finding and keeping customers. However, for transactions to work efficiently, the actual information divulged needs to meet both sides needs, not just one.

3. “Products and services are uniquely configured and priced for each user.”

Person-centric services start the value creation process with individuals’ needs and priorities (i.e. ‘unique configurations’; hence the critical importance of personal information, as per point 2 above), whereas most sellers start with a standardised product or service they want to sell. To that degree, person-centric services are ‘mass customisers’, by definition. (In fact, the notion of mass-customisation itself is inherently seller-centric. Its starting point is the standard product that the seller wants to sell more effectively . . . by ‘customising’ it.)

But starting with each individual does not mean that everything a person-centric service does will end up being uniquely configured or uniquely priced. As individuals, we are all different, but we have many similarities. There is nothing wrong with standardised products (and prices) which address common needs, especially if such standardisation helps reduce total supply costs. There are also many potential problems with customised pricing relating to ‘fairness’, trust, etc.

4. “The service question ‘how can I help’ is meaningful, and causes the customer to pause for thought.”

Wow! That is a really interesting, and important, point. One of the really big challenges – and therefore opportunities – for person-centric services is helping individuals clarify and articulate their wants and needs, which are often very hazy and not well understood even by the individuals feeling these wants and needs.

One of the truly important economic contributions of person-centric services will be their ability to do just this: to help people ‘pause for thought’ about ‘what helps’, and to gather, codify, aggregate, analyse and pass this information on to expert suppliers able to address these needs. This is how real demand webs (along with things like ‘co-creation’) will happen, as opposed to today’s archaic supply chains. This is central to the forthcoming BCCF discussion paper on Added Value Buying Services.

5. “The organisation breaks its own silos and boundaries to innovate on your behalf”.

Person-centric services will generate specialisms which are configured around how best to help individuals improve their economics (needs articulation, personal knowledge banks, personal information publishing services, added value buying services, solution assembly, etc). They will ‘break’ these silos and boundaries at their own peril. (Most silos and boundaries are generated for good reason).

This comment, I think, applies to product and service providers whose silos and boundaries are designed around their quest to improve the firm’s economics and which are incommensurate with the needs of customers. In other words, this is a challenge for sellers who wish to become ‘customer-centric’, not for person-centric services.

6. “Your (i.e. the individual’s) asset base conditions the service specification – not the organisations”.

I like this. It’s a direct follow-on from the core proposition of improving the individual’s economics. It’s organising supply around the individual, rather than individuals around the supplier. But for organisations with legacy systems it is damn difficult to achieve!

Buyer- or person-centric businesses earn their keep by helping individuals improve their own personal, economics (i.e. better use of their time, money, attention, information, emotional investments and so on).

This, I think, is the departure point from our current set-up which is focused on, and revolves around, improving the economics of the ‘producer’ – the firm – rather than that of the consumer.

Does this distinction matter, given that both sides have to meet and find some accommodation when they come to market?

I think so.

For any economy to be sustainably successful (I’m talking about commercially rather than environmentally sustainable here) both sides of a transaction need to benefit. So, for example, in a seller-centric environment buyers need to benefit from the value sellers bring to market.

Over the last century, sellers have been massively successful at doing this, unleashing a massive rise in living standards. So successful in fact, that we have come to believe that this is the only possible way of organising things. So that, in our current set-up, the only way for buyers or individuals to benefit is by first of all improving the economics of the firm. Only if the firm improves its efficiency, increases its revenues etc, can it create or unleash the value that can be passed back to buyers in the form of better products or services, lower prices, whatever. So all eyes are focused on how to improve the economics of the firm.

The intriguing question, however, is ‘what if we turned this on its head (or Right Side Up)?’. What if we focused first on improving the economics of the individual, and then looked to see what value this created or unleashed – value which could then be passed back to firms? (i.e. the same basic principle, but with a different directional flow.)

This would still create win-wins. But they would be a different type of win-win, revolving around a different centre of gravity: the individual, not the firm.

The easiest way to see the difference between these two scenarios is by contrasting marketing with buyer-centric services.

The marketer sits inside a specific firm and is charged with increasing that particular firm’s revenues (improving its economics). He or she usually does this by selling more. So he goes in quest of customers: to attract them, ‘delight’ them, keep them loyal and so on.

That is all wonderful stuff. But it is completely different to locating the go-to-market function with the individual with the aim of improving the individual’s economics. The individual ‘consumer’ doesn’t care two hoots whether a particular firm manages to sell more, more profitably, to loads of other consumers he doesn’t know. His priorities are different. He is interested in scanning the market to find the stuff that best fits his needs and preferences, at the best price, etc.

While the seller-centric model is structured around one firm’s dealings with many different customers, the buyer-centric model is structured around one individual’s dealings with many different sellers. This requires different processes and infrastructure, different types of information, different information content, different measures of success, and so on and so forth.

The seller-centric mind finds this utterly counter-intuitive if not positively dangerous. But, it turns out, if you do manage to improve the economics of individuals, all manner of potential benefit can flow back to suppliers. There are massive win-wins to be had here. Massive. But they are different to the ones most companies are currently investing most of their time, money and effort in pursuit of.

For example, it turns out that the reason why marketing is so expensive and wasteful is that it doesn’t address the needs of the buyer. So buyers pay little attention to it and don’t trust it. (The product may be designed to meet the customer’s consumption need; but the marketing is designed to meet the firm’s go-to-market need – to ‘sell more stuff!’). By addressing the go-to-market needs of buyers, buyer-centric services unleash the information, attention and input that sellers so desperately and expensively yearn for.

Similar effects unfold for a host of other types of person-centric service. By improving the economics of individuals, we discover all sorts of new and better ways to improve the economics of firms too. This is a win-win engine. But a different type of win-win engine – one which most seller-centric firms simply cannot see, just as most craft producers couldn’t see how Henry Ford could make more money by selling more cars at a lower price. (To the craft producer’s mind set, Ford’s approach was simply a disastrous formula for losing money on each transaction, many times over.)

I think this ‘business model’ issue – whose economics are you focused on improving? – is the ‘touchstone’ issue. Everything else follows from that.